Modelling Extreme Events for the Purposes of Security Foresight

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Abstract:

The risk management approach is used increasingly in modern security planning. In this approach, planners attempt to assess the likelihood of an event and the potential loss if the event occurs, and then to select certain measures that minimise an integral criteria of risk over some set of events. However, certain events of low probability but high potential impact, referred to as ‘extreme’ or ‘catastrophic’ events, need to be treated dif-ferently than those with a low potential loss and a high likelihood of occurring. This paper presents a brief overview of six ‘methods’ that have been used in addressing security-related risk management tasks—extreme value theory, catastrophe loss models, black swan theory, dynamic modelling, agent models, and complexity studies—and provides examples. It presents a summary on areas of implementation and underlines the limita-tions of established risk management approaches.